Taxes and Golden Days

People who are in their 70s and 80s had retired at a time when inflation was not a big menace and most banks paid a rate of interest which was either close to or around the double digit mark. But times have changed. The rate of interest paid by banks in fixed deposits is now very much linked to the rate of inflation and, more often than not, they are lower than the inflation rate. This naturally leaves FD customers in a slightly disadvantageous position as they are usually left with a negative real rate of interest (rate of interest – rate of inflation). Added to this is the incidence of income tax on some of the retired people. The two combine to force retired people to either dip into their savings corpus to meet their standards of living, or cut down on expenses to manage with whatever income they generate on their retirement corpus.Aim for liquidity
Financial planners and advisers point out that retired people in their 70s and 80s should also keep in mind the liquidity aspect relating to their investments. So it is advisable they park their money in investment products that mature between three and five years, or in those where there are options for quick withdrawal and are also tax-efficient.

Maintain equity exposure
After the government changed the rules relating to long-term capital gains and imposed higher tax, some advantages that accrued to retail investors through the debt mutual fund route do not exist any more. “Because of these changes, it would be wise for individuals who do not have any major pending financial goal like children’s marriage or buying a house to maintain a small part of the corpus in equity funds.

Though equity is volatile and one should avoid overexposure to stocks post retirement, considering the need for generating inflation-adjusted positive returns, one can maintain a small part of the portfolio in equities to generate inflation-adjusted positive returns,” says Trivedi.

Senior citizens could invest between 5% and 25% of their corpus in equities, depending on the economic situation and market valuations. However, such investments should always be made after consulting an experienced financial planner or adviser.

Make your Will
In addition to investments, retired people should also have an estate plan like a Will or a trust structure ready, as this will be able to protect the person, his/her spouse and their heirs. “Often people procrastinate making a Will, leaving the heirs to deal with several legal hassles in dividing the estate.

The estate plan should ensure that your assets are distributed according to your choice,” says a financial planner. “It is also important to ensure that all your investments have a nominee registered and all your important documents should be held safely, where your spouse/ loved ones can access if you are not able to any more,” the financial planner adds.